Recent news of branch closures has brought the issue of the branch network and its value to an organisation to the fore. In the recession of the early 1990s, closing branch networks was a common cost-saving tactic widespread across many industry sectors as was the later acknowledgement that branch closure programmes were not always effective strategies, certainly in terms of retaining market share.
Yet, the fact remains that across a whole host of industries and sectors, branches and often sales representatives in sales territories are still seen as a cost and are clearly assigned as such. Comparatively little effort is made to quantify the real returns branches from banks to builders’ merchants bring.
Branch and territory planning is still often done intuitively and does not take into account the impact of branches and sales people on market share. Data and data insight can play a pivotal role in optimising a branch network or sales territory, and also highlight the benefits of a well-positioned network in terms of customer acquisition and retention, and the quality of relationships.
Addressing the map
The first step in this process is to determine an organisation’s addressable market for a particular product range or service by analysing its customer base who does it actually sell to? This population can then be mapped across the UK, showing concentrations compared to the current portfolio, and compared to the market at large. It’s at this stage that the real impact of branches or sales representatives can start to be measured.
For instance, by analysing a branch’s own market share by distance from it, a sphere of influence for that branch can be identified this will vary for different products or services. So, a leasing office’s sphere of influence might be 30 miles from its location, yet builders’ merchants will typically have a much more localised catchment area. Geographic location rural or urban is also significant. A business banking branch in a rural market town will have an impact reach that extends for many miles; a city centre branch of only a couple of miles at most (or even hundreds of metres). The finding that market share drops the further away from a branch one is, to some extent, common sense, but data can bring this logic to life and allow businesses to understand a product or service’s radius of influence with pinpoint accuracy.
Optimising locations
Once the addressable market is defined and a business understands how far the radius of influence extends, then branches or territories can be optimised. So, in a greenfield situation, to maximise spheres of influence and positively impact on market share, where would branches ideally be located? This provides a view of current locations against optimal locations and allows analysis of the benefits or disadvantages of moving, closing or indeed, opening branches.
The benefits in keeping customers close with optimised branch or sales territories are three-fold.
1. A corollary of the fact that a branch has a decreasing influence on market share the further away it is from a customer, is that if a customer is a long way from a branch the more likely they are to be lost to the competition, as competitors’ branches may be closer.
2. Using data to find an optimal branch location has also revealed a link between the risk of default on a payment and distance from a branch. For certain sectors, empirical evidence shows that the further away from a branch a customer is, the more likely they are to default on a payment or a loan.
3. Finally, the quality of a customer relationship (whether measured in terms of share-of-wallet or cross selling level etc) can also be impacted the further away a branch is from its customers to a lesser degree than with customer acquisition and retention and risk.
In reality, fully optimising a branch network or sales area is a luxury few businesses can afford, and there is always a balance to be had in terms of optimal locations and what can realistically be achieved. However, analysing the relationship between a branch or sales territory and its customers can in itself provide huge insight for a business as well as help it put in place appropriate marketing strategies around customer acquisition and ongoing management.